january 2012

ISSUE 5

THE BRAZILAN FOCUSED MARKET REPORT

INSIDE THIS ISSUE:

HEADLINE NEWS VESSEL NEWS PETROBRAS TENDERS 2 3 4 5-9 10

WAVE

2012 VESSEL DEMAND ISSO A!

BROUGHT TO YOU BY WESTSHORE SHIPBROKERS AS

02
D

main News

BROUGHT TO YOU BY WESTSHORE SHIPBROKERS AS

The Eleventh Hour

The much anticipated 11th oil concession auction could be just weeks away, but the contents of the auction are cloaked in secrecy leaving the market rife with speculation.
by Inger-Louise Molver

espite seemingly insurmountable logistical and legislative challenges to achieve its goal of producing its vast reserves, Brazils success as an oil nation continues to go from strength to strength. These challenges however have resulted in an extremely cautious if not reluctant attitude to press forward with a further oil rights concession auction, four years having elapsed since the tenth round and that comprised entirely on-shore acreage. However, in an interview with Reuters last week Energy Minister Edison Lobao was quoted as saying that Brazils President Dilma Rousse would approve the countrys 11th oil concession auction within weeks. The auction is expected to include 174 areas comprising 87 on and 87 o shore areas. The crucial go ahead from Rousse is eagerly awaited with speculation of the commencement of the 11th round being talked about for over a year. What is not known, and is intensely anticipated is

exactly which areas will be included in the round. No statement from any government o cial has been able to con rm or even hint at which areas will nally come up for auction. However what is known is that the vast reserves in the pre-salt areas will not be included. Central to the decision on the pre-salt is the new Legislative Framework regarding distribution of oil royalties to the Brazilian provinces. A further discussion on this framework can be found on page seven. The government is expected to issue a bid on some of the pre-salt areas in the second half of 2012 however.

The level of involvement of Petrobras is also up for debate. Will the government insist on a minimum level of participation by Petrobras on each and every block? Will it go as far as to mandate operatorship to the state-owned company or will the IOCs have an opportunity to bid for stakes taking them to operator status even as high as 100%? Again no o cial word on this, but much market speculation. The complexity of the Legislative Framework would suggest that o cials must be close to reaching a decision on the way forward for regulation and royalties distribution to be con dent enough to state the next concession round was only weeks away. With so much at stake, it is safe to say the next few weeks will continue to be fuelled with discussion and debate over the outcome of the 11th oil rights concession round.

03
term fixtures
DATE 21 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 22 Dec 2011 04 Jan 2011 CLIENT BP Brasil Petrobras Petrobras Petrobras Petrobras Petrobras Petrobras Petrobras Petrobras Petrobras OGX

vessel news
VESSEL Maersk Fetcher Far Scout C-Adventurer C-Atlantis ABG TBN 240 Maridive 231 Maridive 212 ABG TBN 327 Varada Ibiza ABG TBN 328 Skandi Mogster PERIOD 3 years 4+4 years 4+4 years 4+4 years 4+4 years 4+4 years 4+4 years 4+4 years 4+4 years 4+4 years 2 yr - extension DAY RATE (USD) RNR 69 400 27 822 27 822 27 900 28 600 28 600 29 007 29 007 29 610 RNR

THIS MONTHS FIXTURES, REQUIREMENTS AND MARKET SCREENINGS

This months fixtures

Maersk Fetcher: BP have awarded the tender released September 2011, one PSV contract to the UT745 Maersk Fetcher. The vessel has been operating in the North Sea and has now arrived in Brazil. The rm contract period is reported to be three years. Maersk Lancer: Currently on contract for Anadarko, expected release is around January 21st. The AHTS has no further commitments at time of writing. However, she has been o ered on the recent AHTS 21000 ARF (B Type) for Petrobras, at USD 62.740,00 ( rst classi ed), and we expect her to be targeted by the NOC for charter. Far Scout: Petrobras granted a 4+4 years charter to AHTS Far Scout, with ROV services (AHTS 18000 ROV). Commencement of contract is expected for Q1/2012. Far Scout is currently working for Petrobras on a 2 year contract. Far Sailor: Current vessel contract ends February 2012, vessel will replace Far Scout on a 2 year contract with Petrobras. ITC Chinook: The 136 TBP AHTS has been re-exported, heading towards WAF. ITC Cyclone departed Brazil as ITC was bidding her on several opportunities outside Brazil and the vessel is expected to head to Angola. CBO Guanabara: Before being delivered to Petrobras in Q1, the MPSV UT715L has been xed to Chevron for 12 days. The vessel is likely to remain trading the Spot for a few more weeks.

spot fixtures
DATE 17 Dec 2011 20 Dec 2011 21 Dec 2011 31 Dec 2011 04 Jan 2012 15 Jan 2012 CLIENT Perenco BR Statoil Chevron Chevron BP Brasil Transocean VESSEL Far Sabre Seabulk Brasil CBO Guanabara Seabulk Brasil Far Sabre Toisa Voyager PERIOD 07 days 20 days 05 days 10 days 15 days 30 days DAY RATE (USD) RNR 35000 32500 RNR 48000 47500

This months requirements and market screenings

requirements
DATE 04 Jan 2011 04 Jan 2011 04 Jan 2011 06 Jan 2011 CLIENT Petrobrs Petrobrs Petrobrs Petrobrs SOW AHTS 12000 AHTS 15000 TS AHTS 18000 TS OSRV 750 PERIOD 4+4 years 4+4 years 4+4 years 4+4 years COMMENCEMENT Jun 2012 Jun 2012 Jun 2012 Jan 2013

CBO Maric: Has been sold to Oceanpact. Skandi Mogster: The vessel was extended with OGX for further 2 years. The red-white KMAR 404 arrived in 2009 and is supporting OGX campaign since then. FPSO OSX-1 has departed Guanabara Bay towards Waimea location, at Campos Basin. Built in Korea, the unit can hold 900.000 barrels. She will be soon connected at location to her underwater oating turret. Sea Kiowa: Gulfmarks vessel nished her 3 years term contract with Petrobras and sails to Singapore. The AHTS has 10,700 bhp and 142 TBP.

market screenings
DATE 27 Dec 2011 27 Dec 2011 06 Jan 2011 CLIENT Petrobras Shell Technip SOW OSRV 750 PSV/AHTS, Cargo duties, Noble CB 2 x PSV + 2 x AHTS PERIOD 4+4 years 20 days 180 days COMMENCEMENT Up to 2013 25 Jan 2012 Q3 2014

04
2012

UPDATE ON THIS MONTHS OUTSTANDING TENDERS

PETROBRAS TENDERS
And while the brokers were rushing around with documents and clients, another tender came out two days later, this time for OSRVs 750 (consult made one week before), A and B, dividing the attention at the o ce. As with the previous tender, the main speci cations were not of a particularly high standard. There is no need for supply duties and the vessels will be used only for stand-by positioning. The tender did include the custom Oil Spill equipment with 750 m of storage and 250 m/h ow rate for the collector system, FiFi 1 (2400 m/h) and DP-1 as well. The most important thing is: the bids are unique, i.e. if you bid on one type, the vessel cannot be bid on the other type, under penalty of having both o ers disquali ed. One last issue concerned the mobilization fee - it should be o ered apart from the day rate. With regards to the delivery dates: A Type in September 2012 and B Type in January-March 2013. This month Petrobras xed two categories: OSRV 750 (August) and AHTS 18000 ROV (August). See chart below, according to primary tender o er (not the one negotiated after classi cation!):

has got o to a ying start with Petrobras releasing a pack tender on 4th January based on a consultation carried out in November last year for various types of AHTS. The most notable aspect of the tender is the simplicity of the speci cation and that goes for all types; 12000, 15000TS or 18000TS. Considering that the rst one will be employed to support Petrobras BGL-1 pipe laying barge, which will work moored whenever operating in shallow waters, the vessel is required to have minimum 130 Tons Bollard Pull, a low requirement on thruster speci cation and only 200m2 deck cargo. On the 15000 category Petrobras seeks newer vessels (from 2001 onwards) of 150 TBP. Initially the vessel will be designated for heading control of tankers only and with no supply duties. On the bigger class, vessels will be employed to support MODU (Mobile O shore Drilling Units) and FPUs (Floating Production Units). They must have at least 180 TBP, two winch drums (AH and Tow) and one secondary winch. All categories state Class I for Dynamic Positioning and have expected commencement June 2012, with deadline for proposals January 26th. Once again, Petrobras divided the prices by day rate and mobilization fee.

TYPE AHTS 18000 ROV

VESSEL FAR SCOUT ATLANTIS ADVENTURER ABG TBN 240 MARIDIVE 521 MARIDIVE 212 ABG TBN 327 VARADA IBIZA ABG TBN 328

MANAGER FARSTAD CHOUEST CHOUEST VARADA MARIDIVE MARIDIVE VARADA VARADA VARADA

DAY RATE (USD) 69400 27822 27822 27900 28600 28600 29007 29007 29610 38700

BRAZILIAN OPERATOR BOS Navegao Bram Oshore Transportes Bram Oshore Transportes Galxia Martima Petrosantos Petrosantos Galxia Martima Galxia Martima Galxia Martima Petrosantos

OSRV 750

AHTS 15000 TO CREST OLYMPUS PACIFIC RADIANCE

a word with westshore

Victor Canellas Shipbroker Trainee
we regret to inform that there were NO o ers for the UT4000. Thats right! Zero, null. What happened?.

thank you to...

This months photographs were kindly sent to us by Varada, UOS and ITC towage.

05

vessel demand in 2012

WHO AND WHAT WILL NEED VESSELS THIS YEAR

what will affect vessel demand in 2012?

petrobras

pre-salt

foreign involvement

drilling campaigns

06

petrobras demand
BRAZILS TYRANNOSAURUS REX
one task eg carry oil, water, drilling uids, dry bulk, handle torpedoes, transport passengers among other categories. In that sense, more PSVs (~ 3000t DWT) are expected to be chartered in 2012, as well as larger PSVs but on a smaller scale. Due to an existing demand for FSVs and Line handlers, we expect Petrobras to issue bidding processes for chartering this type of tonnage as well. Australia and North Sea activities are expected to attract owners attention in 2012, but Petrobras will by far be o ering the longer terms and greater volumes. Petrobras E&P focus will remain on deep and ultra-deep waters, not lowering its 20% present world market share in that segment. Notably, the deep-water discoveries in Brazil represent 33% of worldwide oil discoveries of any kind, taking into consideration that more than 50% of the new discoveries in the last ve years were in deep waters.

The P-Rex!
2011 was a year of intense chartering activity by Petrobras, with circa 80 long term OSV charters (4+4 or 8+8 years) con rmed. Petrobras has an impressive appetite, comparable to that of a T-Rex. After all, it had to grow as much as its physical nature demanded. But the companys taste is picky, and the prey should have the right size and price in order for the P-Rex to grow steadily.
In light of the red alert from Chevrons recent environmental disaster, Petrobras may rush to have all Oil Spill Response Vessels in place to quickly comply with IBAMA (Brazilian NAME TYPE Federal Environmental Regulator) requirements and get the required licenses for its drilling and production activities. This is a sophisticated and costly vessel that will be in big demand in 2012.

for AHTS 18000 A is expected to be issued, aimed at vessels to handle anchors and assist on torpedo operations...

.... Another requirement

Several Anchor handler types made up the rst tender issued this year, in order to cover vessels needed for pipelay barge handling (BGL-1) whenever operating in non DP-mode in shallow waters (AHTS 12000); tugs to perform heading control of tankers during o oading operations (even DP Shuttle tankers need assistance from TS 15000 class of vessel); and a new class of TS 18000 which is meant to render o shore (deepwater) general support to DP MODUs and FPUs, but not necessarily A/H. Another requirement for AHTS 18000 A is expected to be issued, aimed at vessels to handle anchors and assist on torpedo operations. Petrobras will keep its policy of chartering specialized vessels intended for only

We have seen Petrobras courting new OSV owners as suppliers in 2011 and the trend will continue in 2012. Indian, Asian and Middle Eastern owners are among the newcomers on that growing list and which, at rst sight, brings competitive Such a large, aggressive and steady pace advantage to Petrobras on its bidding will demand additional capacity from processes. Another competitive advanthe supply chain, mainly but not only in tage to be Brazil, due to limitation of structure, START AREA OPERATOR OTHER i m p l e m e nte d manpower and time constraints. The on the bidding target of having the pre-salt production rounds is the corresponding to 40.5% of Brazils oil option for production in year 2020 will demand vessels coming numerous resources which includes from overseas jumping the number of OSVs from ca to charge a 300 to 568. This could mean that in order mobilization to grow and move faster to reach its fee. This targets, the T-Rex diet may undergo concept was changes, and structentatively (and successfully) impletural investments mented on the last AHTS 21000 tender will be accelerand is now being kept for both OSRV ated. and AHTS on going tenders. Not less than 66 o shore exploratory wells are expected in 2012, with 15 drilling units and four FPUs expected to go on stream before year end. Although Petrobrass drilling target for 2012 is higher than the North Seas whole drilling activity in 2011, they may face ercer competition to attract tonnage in 2012. West Africa,

07

pre-salt
Written by Jacqueline Medina Shipbroker

THE MUCH TALKED ABOUT AREA AND ITS DEVELOPMENT IN 2012

Pre-salt: Making Waves or Sailing on Calm Seas?

lot of expectation involving There is a development and production, Pre-salt eld not only impacting the oil companies and their strategies looking for new reserves, but also as an important slice of the Brazilian economy. Brazilian Pre-Salt Reservoirs are estimated to reach 100 billion boe, elevating Brazil to OPEC's ranking 11th position, ahead of China, USA and Qatar. But the methods to explore this black gold are still in the very early stage. With Petrobras leading the crowd, the National giant has divided its program in phases."Phase Zero" will prioritise the collection of information and general mapping of the pre-salt by 2018. Between 2013 and 2016, "Phase 1A" will reach the goal of 1 million barrels of produced oil per day. After 2017, "Phase 1B" predicts increased production and acceleration of innovation. From this moment, Petrobras expects to have developed massive use of new technology speci cally designed for pre-salt reservoir conditions. 2012 brings record breaking numbers in line with ANP January 2012 announcement of a new record in Brazilian Oil Production of 2.188 MMbbl/day (November 2011), of which 7% is from pre-salt elds. 2012 will contribute to the target of more than 3.000 MMbbl/day in 2015, when 18% will be from pre-salt elds. By 2020 the estimated participation will be 40%. What is regarded as the biggest challenge for the industry to deliver the technology for such exploration and production, Petrobras states there will be no obstacles on this new frontier. According to the company, investment in such technology reduces costs and the time of exploration and production in pre-salt, generating a huge economy, speci cally by reducing time with chartered rigs and vessels. With these economies, Petrobras can a ord to charter more equipment and explore more at the same time. Therefore Petrobras currently have circa 300 o shore support vessels chartered, but expects nearly 600 by 2020. Of equal importance to Petrobras enthusiasm over Pre-Salt, is the governmental discussion around Pre-Salt's Regulatory Framework. The early 90s and Cardoso's government reduced the presence of the State in the economy, which inevitably brought the breakup of the oil monopoly and an open concession model for natural resource exploration. As the results of such model materialised, and with an inclination of the current government authorities for more involvement of the State, a discussion arouse to debate if such a model should remain. 2012 will hopefully bring a resolution to this debate. This is of utmost necessity to ensure the continuity of the

a c t i v i t y. However, the topics of the argument are complex, amongst which: The proposed law project to de ne the system of production sharing for the exploration and production in pre-salt areas yet not tendered; the creation of a new state company (Petro-Sal); the formation of a Social Fund; the Onerous Transfer legislation for Petrobras to explore up to ve billion barrels accumulated in the pre-salt basins; Capitalization of Petrobras; Concession x Production Sharing model; Royalties distribution and Unitization and consensual agreement on pre-salt geological formation. All these factors are responsible for the delay to the next ANP round (11th Round), highly expected by the oil sector. The increased activity in 2012 is therefore a result of currently licensed/awarded concessions. The resolutions to be (hopefully) presented this year will become the milestone for the business to reach the positive outcome expected by, not least, Petrobras. The next few years to come will also show the impact that the new Regulatory Framework over the Pre-salt area will bring to the industry, the economy and society in Brazil.

08

yankee go home!
NEW ARRIVALS IN BRAZIL
Narrowing down to the O shore Shipping side, all these initiatives are a consequence of a business environment that gives favorable conditions to investors. On one hand the demand remains and gives clear signs that it will remain strong, with the largest sponsorship of Petrobras but also with the growing demand of the Intl. Oil Majors and OGX. Karoon and Vanco will soon nail down their vessel choices and further requirements coming forward, such as Repsol with the Drilling Campaign expected for Q3 2012 and the usual short term requirements from Shell, Star sh, BP, Statoil, which will continue to surface. The business environment has its challenges too. 2011 has possibly been the toughest year for Shipping Companies regarding overhead turnover and pressure for salaries, very little has been seen in terms of getting negotiations advanced to tackle the real issue: taxes. There has even been one strike that hit an o shore operator. The outlook for 2012 is not much more promising in that respect, we are afraid to report. It is expected that the salary negotiations will remain in the same (old)-fashion, controlling the turnover of personnel will become tighter and very little can be expected in terms of exibilization of rules and regulations. To be a little optimistic on that area, we expect that within 2012 the VISA requirements and the notorious NR-72 (which regulates the Brazilian x Foreign worker index) will have some optimization. We also expect a more mature dialogue between Unions and the Government with their counter-parts (Owners and Oil Cos.). Economically, we expect Owners to have a more holistic view on costs and this will push rates being o ered upwards, especially in Petrobras 4+4 year contracts, which will bring better balance to the overall life of the contracts. Altogether, these aspects will support the expansion of the sector in 2012. We are positive that in 2013 we will write a similar text, with other company names that have entered Brazil in 2012, in support to the expectations we have put forward in this article. Brazil is expected to further welcome foreigners, foreign companies, foreign investment. The perspective is that the Commercial Openess Index will improve! *Figures from World Development Indicators report, World Bank, Purchasing Power Parity.

Calma! Westshore has not gone crazy - at least not entirely... This sad sentence can be seen and heard in Brazil everywhere during elections when the radical left parties post cards around the main cities advocating the country remain closed to the world. Fortunately however, this is not what is being seen and practiced in a country that is turning out to be a place that increasingly receives investment and knowledge.
The rst question about Brazil and its activities
dealing with the exterior is: Is Brazil an "open economy"? Yes? But under closer scrutiny, Brazil remains as one of Worlds closest economies, despite the jump seen recently in foreign trade. To put it into perspective, the Commercial Openness Index of Brazil, that is the relation between the GDP and Foreign Trade, remains low, around 20%. A country to be considered "open" has by convention to be over 30% on such index, where, for instance China nds itself, but way below others - like Germany with 55%, South Korea with 73%, Holland 110%, or Malaysia with 205%.* These indexes vary a lot due to Currency Exchange Rates, but give a very accurate indicator of the potential a country has in areas of foreign trade - the lower the number, the more room for expansion, provided the economic and political conditions for such exist. Moreover a demonstration that internal demand is strong, and

that the country has low interdependence, which sustains the local economy in times when the World economy is not doing well. And this foreign trade business area, with a heated internal demand, that joins foreign capital investment, is exactly where Oil and Shipping falls into. These two industries represent streams of development and are a clear example of how Brazil has invested in opening its economy to the world. The last few years have seen a number of Oil Companies either establish operations in the country or signi cantly expand their businesses. Amongst these are; Perenco, Vanco, Karoon, ONGC, the considerable expansion of EBX/OGX/OSX, Shell, Statoil and the BP acquisition of Devon. In 2012 we will see the rst campaigns of Vanco and Karoon taking place. In Shipping, we have seen the arrivals or expansion of Varada, Olympic, Varoon, Bumi Armada, Eidesvik, ER O shore, Greatship, K-Line, Havila, among others. It has been further seen that DeepSea Supply opened its own Brazilian Shipping Company (BSC). In 2012 Great O shore, EMAS, TAG O shore, Maridive will all have rst contracts under execution. Hornbeck is progressing towards fully establishing a BSC as well as two other very reputable Norwegian owners which have asked us con dentiality about this move. Swire Paci c O shore are starting construction of four large 5000 dwt PSVs and DeepSea Supply and Siem will take delivery of their STX built PSVs.

09

drilling campaigns
FOCUS ON IOC ACTIVITY OFFSHORE BRAZIL

Deeper and Cheaper

Written by Douglas Moura Shipbroker

Another year has passed and other year arrives. The results of 2011 and the prospects for the future of the Brazilian Oil and Gas industry has con rmed its potential as an oil nation. At present there are at least 10 Oil Companies operating o shore Brazil, of which the majority are foreign oil companies. The only two Local companies are OGX and Petrobras, OGX being a private company and Petrobras state-owned.

products regarding the Exploration and Production will be in high demand, and with greater urgency as the year progresses. We can also expect environmental issues, health issues, new and more complex laws, but above all, the big issue will be the technology. And this particularly relates to the vessels. In order to continue operational development, the Oil Companies are looking for solutions which can help them to keep operations as cheap as possible, although this can sometimes appear contradictory. The operations are carried out in harsher conditions every day and the only way to get round this is by investing in technology. Initially ship owners will face numerous challenges but mutual cooperation with the oil companies can ensure a pro table future for all parties. The 2012 exploration schedule for the International Oil Companies invested in Brazil is as follows: Anadarko Expected to drill 2 wells BG No drilling expected. BP - expected to drill 3 wells Chevron no drilling due to withdrawal of

authorization after Frade oil spill Karoon Expected to drill 3 wells Maersk Expected to drill 2 wells Repsol Expected to drill 2 wells Sonangol Expected to drill 1 well Statoil Expected to drill 2 wells. OGX Expected to drill 10 wells in the Campos Basin; 6 wells in the Santos Basin before 2014 Petrobras - expected to drill 66 wells Total - 97 wells There will be opportunities for all types of O shore Vessels; PSVs, AHTS, Subsea, ORSVs, LH, Tugs, Barges. The owners will have to invest in the local market in order to comply with ANP regulation stipulating minimum local content. And the OCs in turn will have minimum local content requirements from their suppliers, this will all be under evaluation during the bidding process. Achieving a pro table result is not without risks. But for owners and suppliers who begin the journey of establishing operations and relationships with the IOCs now, the investment is certainly expected to pay o in the future.

What can we expect in 2012?

Firstly, we expect the international oil companys activities to increase this year, and it will bring new opportunities for the many suppliers along the supply chain. Services and

10

isso a!

F I N A L T H O U G H T S F O R TH I S M O N T H

Take it easy...
A holiday in Brazil
Summer vacations.... while in Europe there is still six months before summer arrives, in the southern hemisphere summer has landed! Brazil may be a heated market for o shore companies but it is also enjoying heated weeks in the lead up to Carnival. Summer is also the wet season in places like Rio de Janeiro, so dont be disappointed if you arrive in the city greeted by rain. It is normal, it is humid, it is hot! But the sun will shine and you will enjoy the company of joyful people everywhere you go to. At this time of the year, many visitors choose to venture out of the city. Some like to stay in Rio, visit the citys natural reserves, the Corcovado, Po de Acar. Others like to go up the mountains to Petrpolis and Terespolis. Around Rio, you can visit Minas Gerais and the historic towns of Ouro Preto, Mariana, which boasts the best food in the country comida Mineira! So Paulo is next door with the night-life, top-notch restaurants and theaters or why not travel to the south for Pampas culture and amazing natural sites. You can also travel to the North/Northeast to nd the best beaches where summer is always in season, and winter, spring and autumn rarely make an appearance!

a word with westshore

Daniel Del Rio Managing Director

Looking back, we can clearly see that a lot was done in 2011 as a recently established o

shore shipbrokerage company. With exactly 16 months of being in business, Westhore do Brasil rapidly took a leading position in both long term and spot markets in Brazil. There is naturally a feeling that more could have been done, but I'm sure thats a sentiment shared by many when it comes to the Brazilian o shore market these days. In an arena of big prospects, the more you do, the more you get and the more prepared you are. From an owners perspective, there is one absolute fact: Brazil is one of the main places for OSV owners to be. Even with the challenges faced when working in Brazil, the sooner you get here, the sooner you start getting prepared. Despite Westshore's precise insights and advices, only when operating in Brazilian waters that the Owners will be able to have something close to the full picture of that Market. Looking at 2012, we expect the heat in the market to remain both on the spot and long term ie IOCs and Petrobras are still as active as reported in the articles of this edition. Although its holidays season in Brazil, January had a busy start and we trust this will be the pace for the whole year to come.